上海财大ACCA-F1讲义3参考资料课件

Chapter3Themacro-economicenvironment1Chapter3Themacro-economicen1ThestructureandobjectivesoftheeconomyMacro-economicsisthestudyoftheaggregatedeffectsofthedecisionsofindividualeconomicunits(suchashouseholdsorbusinesses).Itlooksatacompletenational

economy,ortheinternational

economicsystemasawhole.21Thestructureandobjectives1.1IncomeandexpenditureflowsThereisa‘circularflowofincomeintheeconomy’Thismeansexpenditure,outputandincomewillallhavethesametotalvalueAbasicclosedeconomy:FirmsHouseholds31.1Incomeandexpenditureflo1.2WithdrawalsandinjectionsintothecircularflowofincomeWithdrawals:savings,taxation,importexpenditureInjections:investment,governmentspending,exportincomeFinancialsector:saving,investmentspendingGovernment

sector:taxation,governmentspendingForeign

sector:importdemand,exportdemandChangesinbehaviourofoneofthecomponentsofthecircularflowcanleadtosignificantchangesineconomicperformanceasawhole.41.2Withdrawalsandinjections2FactorswhichaffecttheeconomyTheeconomyisrarelyinastablestatebecauseofthevariouschangingfactorswhichinfluenceit.Theseincludeinvestmentlevels,themultipliereffect,inflation,savings,confidence,interestratesandexchangerates.52Factorswhichaffecttheeco2.1ThemultiplierinthenationaleconomyThemultiplierinvolvestheprocessofcirculationofincomeinthenationaleconomy,wherebyaninjectionofacertainsize

leadstoamuchlargerincreaseinnationalincome.Aninitialincreaseinexpenditurewillhaveasnowballeffect,leadingtofurtherandfurtherexpendituresintheeconomy.62.1ThemultiplierinthenatiTheincreaseinnationalincomewillbeamultiplieroftheinitialincreaseinspending,withthesizeofthemultiple

dependingonfactorssuchaswhatproportionofanynewinvestmentisspentorwhatproportionissaved.7Theincreaseinnationalincom2.2Aggregatesupplyanddemand2.2.1AggregatedemandThetotaldemandintheeconomyforgoodsandservicesiscalledaggregatedemand.Include:consumption,investment,governmentspendingandexportsminusimports.82.2AggregatesupplyanddemanTheaggregatedemandcurveTheaggregatedemandcurveslopesfromlefttoright.Ashiftmaybeduetoafactorsuchasanincreaseordecreaseinconsumerconfidence.9Theaggregatedemandcurve92.2.2AggregatesupplyTheaggregatesupplyreferstotheabilityoftheeconomytoproducegoodsandservices.TheaggregatesupplecurveTheaggregatesupplycurveslopesupwardsfromlefttorightanddoesnotshiftintheshortterm102.2.2Aggregatesupply10Wheretheaggregatedemandcurveintersectswiththeaggregatesupplycurve,thetotaldemandforgoodsandservicesintheeconomyisequaltothetotalsupplyofgoodsandservicesintheeconomy.Thisisknownastheequilibriumlevelofnationalincome.Achangeineithertheaggregatesupplyordemandwillhaveanaffectonthepricelevelandthenationalincome.11Wheretheaggregatedemandcur2.2.3AshiftinaggregatedemandP59DiagramAdropinconsumerconfidence:Y0Y1,P0P1Ariseinconsumerconfidence:Y0Y2,P0P2122.2.3Ashiftinaggregatedem3

Thedeterminationofnationalincome3.1AggregatedemandandsupplyequilibriumDemandforgoodsandservicesisinbalancewiththeavailablesupply133Thedeterminationofnationa3.2Full-employmentnationalincomeIfoneaimofacountry’seconomicpolicyisfullemployment,thentheidealequilibriumlevelofnationalincomewillbewhereADandASareinbalanceatthefullemploymentlevelofnationalincome,withoutanyinflationarygap.Whereaggregatedemandatcurrentpricelevelsisexactlysufficienttoencouragefirmstoproduceatanoutputcapacitywherethecountry’sresourcesarefullyemployed.143.2Full-employmentnationali3.3InflationarygapsOccurswhenresourcesarefullyemployedAnyincreaseindemandonlyservestoincreaseprices3.4Example153.3Inflationarygaps153.5DeflationarygapOccurswithunemploymentofresourcesAnychangeindemandwillaffectoutputPricesarefairlyconstantActualnationalincomeisbelowfullemploymentnationalincome163.5Deflationarygap163.6StagflationHighunemploymentcombinedwithhighinflationAnylongtermmajorincreaseincosts(apriceshock)islikelytohavethiseffect.173.6Stagflation173.7SummaryAnequilibriumnationalincomewillbereachedwhereaggregatedemandequalsaggregatesupply.Oneisatalevelofdemandwhichexceedstheproductivecapabilitiesoftheeconomyatfullemployment,andthereisinsufficientoutputcapacityintheeconomytomeetdemandatcurrentprices.Thereisthenaninflationarygap.Theotherisatalevelofemploymentwhichisbelowthefullemploymentlevelofnationalincome.Thedifferencebetweenactualnationalincomeandfullemploymentnationalincomeiscalledadeflationarygap.Tocreatefullemployment,thetotalnationalincomemustbeincreasedbytheamountofthedeflationarygap.183.7Summary184

ThebusinesscycleBusinesscyclesortradecyclesarethecontinualsequence.rapidgrowthinnationalincome,followedby……aslow-downingrowth……thenafallinnationalincome...…afterwhichcomesgrowthagain,whichpeaks……followedagainbyrecession…194ThebusinesscycleBusinessc4.1PhasesinthebusinesscycleP61DiagramRecession(PointA)Depression(PointB)Recovery(PointC)Boom(PointD)Recessiontendstooccurquickly,whilerecoveryistypicallyaslowerprocess.204.1Phasesinthebusinesscyc4.2DiagrammaticexplanationP61DiagramWidefluctuationsinlevelsofeconomicactivityaredamagingtotheoveralleconomic,well-beingofsociety.Governmentsgenerallyseektostabilisetheeconomicsystem.214.2Diagrammaticexplanation21QuestionsInthebusinesscycleifArepresentsRecession,BDepression,CRecoveryandDBoom,whichisthecorrectsequence?ABADCBDABCCCBADDACDBAnswer:B22QuestionsInthebusinesscycle5

Inflationanditsconsequences5.1InflationInflationisthenamegiventoanincreaseinpricelevelsgenerally.Itisalsomanifestinthedeclineinthepurchasingpowerofmoney.Deflation(fallingprices)isnormallyassociatedwithlowratesofgrowthandevenrecession.Ahealthyeconomymayrequiresomeinflation.235Inflationanditsconsequenc5.2Whyisinflationaproblem?(ahighrateofpriceinflation)5.2.1RedistributionofincomeandwealthInwayswhichmaybeundesirable.Ingeneral,intimesofinflationthosewitheconomicpowertendtogainattheexpenseoftheweak,particularlythoseonfixedincomes.245.2Whyisinflationaproblem5.2.2BalanceofpaymentseffectsIfacountryhasahigherrateofinflationthanitsmajortradingpartners,itsexportswillbecomerelativelyexpensiveandimportsrelativelycheap.Asaresult,thebalanceoftradewillsuffer,affectingemploymentinexportingindustriesandinindustriesproducingimport-substitutes.Eventually,theexchangeratewillbeaffected.255.2.2Balanceofpaymentseffe5.2.3UncertaintyofthevalueofmoneyandpricesNoonehascertainknowledgeofthetruerateofinflation.Asaresult,noonehascertainknowledgeofthevalueofmoneyoroftherealmeaningofprices.Aspricesconveylessinformation,theprocessofresourceallocationislessefficientandrationaldecision-makingisalmostimpossible.265.2.3Uncertaintyofthevalue5.2.4ResourcecostsofchangingpricesSubstantiallabourtimeisspentonplanningandimplementingpricechanges.Customersmayalsohavetospendmoretimemakingpricecomparison.275.2.4Resourcecostsofchangi5.2.5EconomicgrowthandinvestmentInflationisharmfultoacountry’seconomicgrowthandlevelofinvestment.285.2.5Economicgrowthandinve5.3ConsumerpriceindicesAconsumerpriceindexisbasedonachosen‘basket’ofitemswhichconsumerspurchase.Aweightingisdecidedforeachitemaccordingtotheaveragespendingontheitembyconsumers.295.3Consumerpriceindices295.3.1TheRPIandtheCPIRetailPricesIndex(RPI)measuresthepercentagechangesmonthbymonthintheaveragelevelofpricesofthecommoditiesandservices,includinghousingcost,purchasedbythegreatmajorityofhouseholdsintheUK.UKHICP(HarmonisedIndexofConsumerPrices)iscalledtheConsumerPricesIndex(CPI).TheCPIexcludesmosthousingcosts.305.3.1TheRPIandtheCPI305.3.2TheunderlyingrateofinflationUnderlyingrateofinflationisusuallyusedtorefertotheRPIadjustedtoexcludemortgagecostsandsometimesotherelementsaswell(suchasthelocalcounciltax).RPIXistheunderlyingrateofinflationmeasuredastheincreaseintheRPIexcludingmortgageinterestpayment.RPIYgoesfurtherandexcludestheeffectsofsalestax(VAT)changesaswell.315.3.2Theunderlyingrateofi5.4Causesofinflation5.4.1DemandpullinflationInflationresultingfromapersistentexcessofaggregatedemandoveraggregatesupply.5.4.2CostpushinflationInflationresultingfromanincreaseinthecostsofproductionofgoodsandservices.5.4.3ImportcostfactorsWhenthecostsofessentialimportsariseregardlessofwhetherornottheyareinshortsupply.325.4Causesofinflation325.4.4ExpectationsandinflationRegardlesswhetherthefactorsthathavecausedinflationarestillpersistentornot,therewillariseagenerallyheldviewofwhatinflationislikelytobe.Wage-pricespiral5.4.5MoneysupplygrowthMonetaristshavearguedthatinflationiscausedbyincreasesinthesupplyofmoney.335.4.4ExpectationsandinflatiQuestionsTheConsumerPricesIndex(CPI)istheEuropeanequivalentoftheRetailPricesIndex(RPI).Trueorfalse?ATrueBFalseAnswer:B34QuestionsTheConsumerPricesI6

Unemployment6.1TherateofunemploymentNumberofunemployed/totalworkforce*100%FlowsintounemploymentMembersoftheworkinglabourforcebecomingunemployedPeopleoutofthelabourforcejoiningtheunemployedFlowsoutofunemploymentUnemployedpeoplefindjobsLaid-offworkersbeingre-employedUnemployedpeoplestoppingthesearchforwork356Unemployment6.1Therateof6.2ConsequencesofunemploymentLossofoutput:theeconomyisnotproducingasmuchoutputasitcouldLossofhumancapital:theunemployedlabourwillgraduallylossitsskillsIncreasinginequalitiesinthedistributionofincome:thepoorgetpoorerSocialcosts:personalsufferinganddistress,increasesincrimeIncreasedburdenofwelfarepayment366.2Consequencesofunemployme6.3CausesofunemploymentRealwageunemploymentWhenthesupplyoflabourexceedsthedemandforlabour,butrealwagesdonotfallforthelabourmarkettoclear.StrongtradeunionsMinimumwagerateFrictionalFrictioninthelabourmarket:difficultyinmatchingquicklyworkerswithjobsTemporary376.3Causesofunemployment37SeasonalIncertainindustries,thedemandforlabourfluctuatesinseasonalpatternsthroughouttheyearShort-termStructuralLong-termchangesoccurintheconditionsofanindustryHighregionalunemploymentinthelocationoftheindustryaffectedLonger-term38Seasonal38TechnologicalStructuralunemployment,whichoccurswhennewtechnologiesareintroducedOldskillsarenolongerrequiredAlaboursavingaspectCyclicalordemand-deficientDomesticandforeigntradegothroughcyclesofboom,decline,recession,recovery,thenboomagain,andsoonCanbelong-term39Technological396.4GovernmentemploymentpoliciesSpendingmoremoneydirectlyonjobs(forexamplehiringmorecivilservants)EncouraginggrowthintheprivatesectoroftheeconomyEncouragingtraininginjobskillsOfferinggrantassistancetoemployersinkeyregionalareas406.4GovernmentemploymentpoliEncouraginglabourmobilitybyofferingindividualsfinancialassistancewithrelocationexpense,andimprovingtheflowofinformationonvacanciesReducingwagestomarketclearinglevelsAbolishingclosedshopagreementsAbolishingminimumwageregulations41EncouraginglabourmobilitybyQuestionsWhichofthefollowingisnotacategoryofunemployment?ATechnologicalBCyclicalCDemographicDSeasonalAnswer:C42QuestionsWhichofthefollowinHowis‘structuralunemployment’caused?ALong-termchangesoccurintheconditionsofanindustryBStrongtradeunionsresistafallintheirwagesCThedemandforlabourfluctuatesthroughouttheyearDThereisdifficultyinmatchingworkerswithjobsAnswer:A43Howis‘structuralunemploymenWhydoesunemploymentresultinlossofoutput?AUnemployedpeopleearnlessthanemployedpeopleBUnemployedlabourwillgraduallyloseitsskills,andabilitytocontributetoproductionlevelsCUnemployedbringssocialproblemsDTheeconomyisnotproducingasmuchasitcould,becausethepotentiallabourforceisnotfullyutilisedAnswer:D44Whydoesunemploymentresulti7

Theobjectivesofeconomicgrowth7.1EconomicgrowthEconomicgrowthmaybemeasuredbyincreasesintherealgrossnationalproduct(GNP)perheadofthepopulation.EconomicgrowthmaybebalancedwhenallsectorsoftheeconomyexpandtogetherUnbalancedActualeconomicgrowthistheannualpercentageincreaseinnationaloutput,whichtypicallyfluctuatesinaccordancewiththetradecycle.Potentialeconomicgrowthistherateatwhichtheeconomywouldgrowifallresources(egpeopleandmachinery)wereutilised.457Theobjectivesofeconomicg7.2ActualgrowthActualgrowthinthelongrunisdeterminedbytwofactorsThegrowthinpotentialoutput(aggregatesupply)Thegrowthinaggregatedemand(AD)7.3PotentialgrowthThecausesofgrowthinpotentialoutputarethedeterminantsofthecapacityoftheeconomy(thesupplyside)ratherthanactualspending(thedemandside)TheremaybeincreasesintheamountofresourcesavailableLandandrawmaterialsLabour(thesizeoftheworkingpopulation)CapitalIncreasesintheproductivityofresources467.2Actualgrowth467.4FactorsneededforsustainedeconomicgrowthSustainedeconomicgrowthdependsheavilyonanadequatelevelofnewinvestment,whichwillbeundertakenifthereareexpectationsoffuturegrowthindemand.7.5NaturalresourcesImposealimitontherateofgrowth477.4Factorsneededforsustain7.6TechnologicalprogressThesameamountsofthefactorsofproductioncanproduceahigheroutputNewproductswillbedeveloped,thuseaddingtooutputgrowthCapitalsaving/Neutral/LaboursavingTechnologicalprogressmaythereforestimulategrowthbutatthesametimeconflictwiththegoaloffullemployment.487.6Technologicalprogress487.7ExternaltradeinfluencesoneconomicgrowthIftradingpartnershaveslowgrowth,theamountofexportsacountrycanselltothemwillgrowonlyslowly,andthislimitsthecountry’sownopportunitiesforinvestmentandgrowth.497.7Externaltradeinfluences7.8AdvantagesanddisadvantagesofeconomicgrowthAdvantagesEconomicgrowthshouldleadtoahigherincomeperheadwhichcaninturnleadtohigherlevelsofconsumptionandabetterstandardofliving.Acountrywitheconomicgrowthismoreeasilyabletoprovidewelfareserviceswithoutcreatingintolerabletaxburdensonthecommunity.DisadvantagesFasteruseofnaturalresourcesPollutionPeopleunabletoadapttothedemandsfornewskillsandmoretraining,structuralunemploymentIntheshort-run,highergrowthrequiresacutinconsumption507.8AdvantagesanddisadvantagQuestionsWhichofthefollowingisnotadisadvantageofeconomicgrowth?AIncreasedpollutionBStructuralunemploymentCFasteruseofnaturalresourcesDHigherstandardoflivingAnswer:D51QuestionsWhichofthefollowin8

GovernmentpoliciesformanagingtheeconomyFourmainobjectivesofeconomicpolicyToachieveeconomicgrowthTocontrolpriceinflationToachievefullemploymentToachieveabalancebetweenexportsandimports8.1GovernmentspendingGovernmentspendmoneyonsuchashealth,socialservices,education,transport,defence,grantstoindustryandsoon.528Governmentpoliciesformana8.2SignificanceofgovernmenttaxandspendingdecisionstocompaniesExpendituredecisionsbygovernmentaffectsupplierstothegovernmentAknock-oneffectthroughouttheeconomyTaxationaffectsconsumers’purchasingpowerTaxesoncompanyprofitsandtaxallowancesaffecttheafter-taxreturnoninvestmentInvestmentbythepublicsectorwilltendtodirectedtowardsactivitiesinwhichthepublicsectorisinvolvedoronfulfillingsocialnees.Publicsectorinvestmentmighthavealongertimescaleorlessquantifiableeconomicbenefitsthantheprivatesectorisabletocopewith538.2Significanceofgovernment8.3EconomicplanningGovernmentplanseconomicactivityindetail:thedirectorofeconomicactivity,outoffavourGovernmentplanningonalesserscale,withthegovernmentasanenablerofprivatesectoractivityandascorrectorofmarketimperfectionsGovernment’smostimportanteconomicroleisthelegalsystemrelatingtobusinessGovernmentalsohasaresponsibilityformacro-economicmanagement,toprovidestableconditionsGovernmentscanraisetradebarrierstoprotectdomesticindustryGovernmentscansubsidiseexports,orpromotetheminotherwaysGovernmentscanalsoencourageinwardinvestmentbyforeigncountriesRegionalpolicyTaxincentivesorgrantsfroinvestingincertainareasRelaxingorenforcingtownandcountyplanningrestrictionsDevelopingnewtownstoreducepopulationpressureinmajorconurbationsPromotionofinfrastructuredevelopments548.3Economicplanning548.4StateinfluencesoverorganisationsOveralleconomicpolicyIndustrypolicyEnvironmentandinfrastructurepolicySocialpolicyForeignpolicy558.4Stateinfluencesoverorga8.5GovernmentinfluenceovercommercialdecisionsOutputcapacityCompetitionMonopoliesSalesdemand8.6GovernmentinfluenceoveroperationaldecisionsHealthandsafetyEmploymentConsumersTax568.5GovernmentinfluenceoverQuestionsWhichofthefollowingisNOTatargetofmacroeconomicpolicyobjectives?AEconomicgrowthBWagesandsalariesCInflationDUnemploymentAnswer:B57QuestionsWhichofthefollowin9

FiscalpolicyGovernmentpolicyontaxation,publicborrowingandpublicspending9.1FiscalpolicyandtheBudgetTheformalplanningoffiscalpolicyisusuallydoneonceayearandissetoutintheBudgetExpenditureRevenuesBorrowingTheamountthatthegovernmentmustborroweachyearisknownasthePublicSectorNetCashRequirement(PSNCR)589FiscalpolicyGovernmentpoli9.2BudgetsurplusandbudgetdeficitHowthegovernmenttostimulatedemandintheeconomyItcanincreasedemanddirectlybyspendingmoreitselfThisextraspendingcouldbefinancedbyhighertaxesTheextragovernmentspendingcouldalsobefinancedbyextragovernmentborrowingItcanincreasedemandindirectlybyreducingtaxationCutsintaxationcanbematchedbycutsingovernmentspendingTaxcutscanbefinancedbymoregovernmentborrowingExpenditurechangesandtaxchangesarenotmutuallyexclusiveoptions599.2BudgetsurplusandbudgetWhenagovernment’sincomeexceedsitsexpenditure,andthereisanegativePSNCRorpublicsectordebtrepayment(PSDR),runningabudgetsurplusContractionarypolicy,toreducethesizeofthemoneysupplybytakingmoneyoutoftheeconomyWhenagovernment’sexpenditureexceedsitsincome,sothatitmustborrowtomakeupthedifference,thereisaPSNCR,runningabudgetdeficitinjectingmoneyintotheeconomy,expansionarypolicy60Whenagovernment’sincomeexc9.3FunctionsoftaxationToraiserevenuesforthegovernmentTocausecertainproductstobepricedtotakeintoaccounttheirsocialcostsToredistributeincomeandwealthToprotectindustriesfromforeigncompetition619.3Functionsoftaxation619.4DirectandindirecttaxesAdirecttaxispaiddirectbyapersontotheRevenueauthority.Adirecttaxcanbeleviedonincomeandprofits,oronwealth.Directtaxestendtobeprogressiveorproportionaltaxes.Theyarealsousuallyunavoidable.629.4Directandindirecttaxes6AnindirecttaxiscollectedbytheRevenueauthorityfromanintermediary(asupplier)whothenattemptstopassonthetaxtoconsumersinthepriceofgoodstheysellAspecifictaxischargedasafixedsumperunitsoldAnadvaloremtaxischargedasafixedpercentageofthepriceofthegoodCanberegressive,whenthetaxesareplacedonessentialcommoditiesorcommoditiesconsumedbypoorerpeopleingreaterquantities.63Anindirecttaxiscollectedb9.5TaxandincomelevelsAregressivetaxtakesahigherproportionofapoorperson’ssalarythanofarichperson’s.Aproportionaltaxtakesthesameproportionofincomeintaxfromalllevelsofincome.Aprogressivetaxtakesahigherproportionofincomeintaxasincomerises.649.5Taxandincomelevels64Questions________iscollectedbytheRevenueauthorityfromanintermediarywhothenattemptstopassitontoconsumers.Whichofthefollowingcorrectlycompletesthesentenceabove?ADirecttaxBProgressivetaxCIndirecttaxAnswer:C65Questions________iscollected10

Monetarypolicy10.1ObjectivesofmonetarypolicyUsesmoneysupply,interestrates,exchangerates,creditcontrolsInfluencesaggregatedemandandcontrolsinflation……whichreduceseconomicuncertainty,stimulatesinvestmentandoutput6610Monetarypolicy10.1Objecti10.2ThemoneysupplyasatargetofmonetarypolicyTomonetaristeconomists,anincreaseinthemoneysupplywillraisepricesandincomesandthisinturnwillraisethedemandformoneytospend.6710.2Themoneysupplyasatar10.3InterestratesasatargetofmonetarypolicyAriseininterestrateswillraisethepriceofborrowing,investmentplansmaybecurtailed,individualsshouldbeexpectedtoreduceorpostponeconsumptionTheconnectionisnotastableandpredictableone,andinterestratechangesareonlylikelytoaffectthelevelofexpenditureafteraconsiderabletimelag.6810.3InterestratesasatargeHighinterestrateswillkeepthevalueofsterlinghigherthanitwouldotherwisebe,thiswillkeepthecostofexportshigh,andsodiscouragethepurchaseofexports.Toprotectthebalanceofpaymentsandtopreventimport-costpushinflation.Highinterestrateswillattractforeigninvestorsintosterlinginvestments,andsoprovidecapitalinflowswhichhelptofinancethelargeUKbalanceofpaymentdeficit.Theauthoritiesareabletoinfluenceinterestratesmuchmoreeffectivelyandrapidlythantheycaninfluenceotherpolicytargets.69Highinterestrateswillkeep10.4TheexchangerateasatargetofmonetarypolicyIftheexchangeratefalls,exportsbecomecheapertooverseasbuyersandsomorecompetitivetoexportmarket.Importswillbecomemoreexpensive,soreducedemandforimports.Tendtoincreasethecostofimportsandaddstotherateofdomesticinflation.Anincreaseintheexchangeratewillhavetheoppositeeffect.7010.4Theexchangerateasata10.5TargetsandindicatorsAleadingindicatorisonewhichgivesanadvanceindicationofwhatwillhappentotheeconomyinthefuture.EgvalueofsterlingAcoincidentindicatorisonewhichgivesanindicationofchangesineconomicconditionsatthesametimethatthesechangesareoccurring.EgnarrowmoneysupplyAlaggingindicatorisonewhichlagsbehindtheeconomiccycle.EgunemploymentMonetaryindicatorsThesizeofthemoneystockInterestratesExchangerateThesizeofthegovernment’sborrowingGovernmentborrowingasapercentageofGrossDomesticProduct7110.5Targetsandindicators7110.6MonetarypolicyandfiscalpolicyMonetarypolicycanbemadetoactasasubsidiarysupporttofiscalpolicyanddemandmanagement.Apolicyoflowinterestratesortheabsenceofanyformofcreditcontrol,wouldincreaseexpenditureintheeconomy.Highinterestratesmightreducespendingintheeconomy.Strictcreditcontrolsmightreducelendingandsoreducedemandintheeconomy.7210.6Monetarypolicyandfisca10.7Monetarypolicy,inflationcontrolandeconomicgrowthHighinflationincreaseseconomicuncertainty.Bringinginflationundercontrolwillrestorebusinessconfidenceandhelpinternationaltradebystabilisingtheexchangerate.Aresurgenceofbusinessconfidencethroughlowerinterestrateswillstimulateinvestmentandrealoutput.Acontrolledgrowthinthemoneysupplywillprovidehigherincomesforindividualstopurchasethehigheroutput.7310.7Monetarypolicy,inflatioQuestionsWhichofthefollowingeffectsislikelytoresultfromanincreaseintheexchangerate?AAstimulustoexportsBAnincreaseinthecostsofimportsCReducingdemandforimportsDAreductionintherateofdomesticinflationAnswer:D74QuestionsWhichofthefollowin11

Thebalanceofpayments11.1ThenatureofthebalanceofpaymentsCurrentaccounttransactionsTradeingoodsTradeinservicesIncomeIncomefromemploymentofUKresidentsbyoverseasfirmsIncomefromcapitalinvestmentoverseasTransfersPublicsectorpaymentstoandreceiptsfromoverseasbodiessuchastheEUNon-governmentsectorpaymentstoandreceiptsfrombodiessuchastheEU7511Thebalanceofpayments11.1CapitalaccountPublicsectorflowsofcapitalintoandoutofthecountryFinancialaccountFlowsofcapitaltoandfromthenon-governmentsectorPeopleusuallyrefertothedeficitorsurplusonthecurrentaccount,orpossiblytothesurplusordeficitontradeingoodsonly.76Capitalaccount7611.2EquilibriuminthebalanceofpaymentsOveraperiodoftime,theexchangerateremainsstableandautonomouscreditsanddebitsareequalinvalue.7711.2Equilibriuminthebalanc11.3SurplusordeficitinthecurrentaccountWhenacountryiscontinuallyindeficit,itisimportingmoregoodsandservicesthatitisexportingItmayborrowmoreandmorefromabroadItmaysellmoreandmoreofitsassetsTherewillbepressureontheexchangeratetodepreciateinvalueIfacountryhasasurplusoncurrentaccountyearafteryear,itmightinvestthesurplusabroadoraddittoofficialreserveOthercountriesmustbeincontinualdeficit,rundowntheirofficial